A recession for the many, not the few

Despite the worry over middle-class job losses, it is the poorest who are
suffering most, says Edmund Conway.

Blue-collar workers have been fired at three times the rate of those with professional skillsPhoto: PA

Edmund Conway

7:38PM BST 22 Jul 2009

This was supposed to be a middle-class meltdown – a “risotto recession”, as I labelled it last year. The Government even set out emergency plans to help job centres cope with an influx of unemployed City bigwigs, corporate lawyers and hedge fund managers, who would be looking for support as white-collar workers, who had been spared the worst in previous downturns, became the biggest victims of the financial crisis.

In fact, we could hardly have been more wrong. Certainly, many middle-class workers have lost their jobs. Some have lost their homes. But their pain, in Britain at least, is being dwarfed by that of the least well-off: once again, it is the poorest who are suffering most.

This may seem strange: we assume, because of the deafening noise generated by the banking crisis, that it is financiers and City workers who have lost their jobs at the fastest rate. In fact, according to the Chartered Institute for Personnel and Development, blue-collar workers have been fired at three times the rate of those with managerial and professional skills. And the plight of those who keep their jobs is hardly any more encouraging: even as the survivors at Barclays or Goldman Sachs award themselves bumper bonuses, the salaries of those working in industry are slowly collapsing. According to official figures published yesterday, the manufacturing sector saw wages fall last year (by 0.4 per cent) for the first time in recent history.

What changed? First, the financial crisis triggered a collapse in the wider economy. People stopped buying cars, or shopping for expensive goods; trade seized up. The financial sector may have been first in line, but so great was the economic tidal wave that it overwhelmed all sectors of the economy.

Second, it is a well-established fact that in recessions, the less skilled and less well-off tend to suffer disproportionately. They have less of a professional or financial buffer than those who can fall back on a university education or a pot of savings. Companies find unskilled workers easier to hire and easier to fire, while manufacturing firms, which can stockpile unsold goods, cut back quicker than almost anyone else. Think of Honda, which temporarily mothballed its car plant in Swindon as demand dried up.

Third, and less easy to justify, was what happened next. Governments around the world paid billions in taxpayers’ cash to support the financial sector – by definition, those firms with better-paid, more skilled workers. Banks were saved, but car companies and other manufacturers and retail groups were allowed to collapse. Clearly, there was an explanation – banks provide the credit without which capitalism would implode – but the result was that the richest and least needy were kept afloat by cash provided in part by the poorest.

However, the rot goes deeper. Once you dig into Britain’s mountain of household debt, you find a stark divide. As the crisis began, in late 2007, the poorest 40 per cent of families were, on average, spending £26.50 more than they earned every week. They were leaking money, and made up for it by borrowing more. The top 20 per cent of earners, on the other hand, were putting an average of £318 into the bank every week.

In other words, it was the poorest who were most reliant on debt merely to stay afloat. And once the credit taps were turned off, many of these families started to hit the financial wall. Those that didn’t were forced to slash spending, to take on what extra work was still available, and scrimp as much as possible to avoid the breadline.

It would be bad enough if it was merely the unskilled and poor who were suffering. But we are also facing a youth unemployment crisis of almost unprecedented proportions – indeed, any claims Gordon Brown has to have helped the youngest and most vulnerable have been shattered. The recession has created an army of dispossessed, disenchanted young men (the majority of those losing their jobs are male). It is a recipe for social chaos not witnessed since the riot-punctuated Seventies and Eighties. It also, perhaps, helps to explain the visceral public reaction to this newspaper’s revelations over MPs’ expenses: it was a sign of the widening rift, already at unprecedented proportions before the crash, between the haves and have-nots.

Can the situation be rescued? In the long run, the best solution is to improve the education system, and ensure that people have the qualifications to get jobs when there are some to be had. In the short run, this Government and the next must, as a matter of urgency, devise ways to keep some of the unemployed active.

This may mean getting them into schools and colleges, as David Blanchflower, the distinguished economist, has suggested in these pages; it may mean introducing some form of compulsory community or civic service for jobless teens. The problem, of course, is that there is little or no cash left in the public coffers to finance such an operation.

But if the alternative is unrest on a scale not witnessed for decades, doing nothing will be a terrible mistake.